Financial market reaction to the Russo-Georgian War
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Just on 8 August 2008, the day Russia launched a full-scale invasion of Georgia, Russia lost six billion dollars, according to the finance minister of Russia.
Russian ruble ''hum''; cv, тенкĕ ''tenke''; kv, шайт ''shayt''; Lak: къуруш ''k'urush''; Mari: теҥге ''tenge''; os, сом ''som''; tt-Cyrl, сум ''sum''; udm, манет ''manet''; sah, солкуобай ''solkuobay'' , name_ab ...
fell. ''
Lenta.Ru ''Lenta.ru'' (russian: Лента.Ру; stylised as LƐNTA.RU) is a Russian-language online newspaper. Based in Moscow, it is owned by Rambler Media Group. In 2013, the Alexander Mamut-owned companies "SUP Media" and "Rambler-Afisha" merged to ...
'' stated that the reports on the entrance of the Russian tanks into South Ossetia was a cue to the investors to sell their assets. On 8 August 2008,
Fitch Ratings Fitch Ratings Inc. is an American credit rating agency and is one of the " Big Three credit rating agencies", the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations ( NRSRO ...
lowered Georgia's sovereign debt ratings from BB− to B+, commenting that there were "increased downside risks to Georgia's sovereign creditworthiness".
Standard and Poor's S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is cons ...
also downgraded ratings of Georgia. Although Georgia has no notable oil or gas reserves, its territory hosts part of the pipeline supplying Europe, and journalists expressed fear that the war may damage the
Baku–Tbilisi–Ceyhan pipeline The Baku–Tbilisi–Ceyhan (BTC) pipeline is a long crude oil pipeline from the Azeri–Chirag–Gunashli oil field in the Caspian Sea to the Mediterranean Sea. It connects Baku, the capital of Azerbaijan and Ceyhan, a port on the south-easter ...
(BTC pipeline), 30% of which was owned by BP. The BTC pipeline was closed before the conflict because of the terror attack allegedly by the
PKK The Kurdistan Workers' Party or PKK is a Kurdish militant political organization and armed guerrilla movement, which historically operated throughout Kurdistan, but is now primarily based in the mountainous Kurdish-majority regions of sout ...
in Turkey on 6 August 2008. On 8 August 2008, light sweet crude for September delivery fell to $115.20 on the
New York Mercantile Exchange The New York Mercantile Exchange (NYMEX) is a commodity futures exchange owned and operated by CME Group of Chicago. NYMEX is located at One North End Avenue in Brookfield Place in the Battery Park City section of Manhattan, New York City. T ...
. The war created further issues for BP. Georgian government said that Russian warplanes destroyed the port of
Poti Poti ( ka, ფოთი ; Mingrelian: ფუთი; Laz: ჶაში/Faşi or ფაში/Paşi) is a port city in Georgia, located on the eastern Black Sea coast in the region of Samegrelo-Zemo Svaneti in the west of the country. Built near t ...
on 8 August, which the Georgian government called "a key port for the transportation of energy sources" near to the Baku-Supsa pipeline and the Supsa oil terminal. On 9 August 2008, Georgia said that Russian warplanes attacked the Baku-Tbilisi-Ceyhan pipeline. On 12 August 2008, BP shut down the Baku-Supsa Pipeline and the
South Caucasus Pipeline The South Caucasus Pipeline (also known as Baku–Tbilisi–Erzurum Pipeline, BTE pipeline, or Shah Deniz Pipeline) is a natural gas pipeline from the Shah Deniz gas field in the Azerbaijan sector of the Caspian Sea to Turkey. It runs parallel t ...
for the safety reasons. Gas supplies through the South Caucasus Pipeline were restarted on 14 August 2008. When Russian president Dmitry Medvedev announced the cessation of hostilities on 12 August 2008, Russian markets and ruble stopped falling. After Medvedev's recognition of Abkhazia and South Ossetia on 26 August, Russia's indexes and ruble fell. Russian Finance Minister
Alexei Kudrin Alexei Leonidovich Kudrin ( rus, Алексе́й Леони́дович Ку́дрин, p=ɐlʲɪkˈsʲej lʲɪɐˈnʲidəvʲɪtɕ ˈkudrʲɪn; born 12 October 1960) is a Russian liberal politician and economist. Previously he served as the C ...
stated on 17 August that $7 billion left Russia between 8 and 11 August. By 20 August 2008, the market value of the Russian companies fell to less than $1 trillion. On 9 September 2008,
Assistant Secretary of State for European and Eurasian Affairs The Assistant Secretary of State for European and Eurasian Affairs is a position within the United States Department of State that leads the Bureau of European and Eurasian Affairs charged with implementing American foreign policy in Europe and Eu ...
Daniel Fried Daniel Fried (born 1952) is an American diplomat, who served as assistant secretary of state for European and Eurasian affairs from 2005 to 2009 and United States ambassador to Poland from 1997 to 2000.United States House Committee on Foreign Affairs The United States House Committee on Foreign Affairs, also known as the House Foreign Affairs Committee, is a standing committee of the U.S. House of Representatives with jurisdiction over bills and investigations concerning the foreign affairs ...
, "The recent flight of billions of dollars from Russian equity markets is only an initial sign of the costs to Russia over time of its behavior." Fried warned that investors "generally seek a stable relationship with their economic partners and a predictable climate for their investments." Russian journalist
Yulia Latynina Yulia Leonidovna Latynina (russian: Ю́лия Леони́довна Латы́нина; born 16 June 1966) is a Russian writer and journalist. She is a columnist for ''Novaya Gazeta'' and the most popular host at the Echo of Moscow radio stat ...
argued that the investors were reacting to the hearings at the
United States Congress The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...
where
Eric S. Edelman Eric Steven Edelman (born October 27, 1951) is an American diplomat who served as Under Secretary of Defense for Policy (2005–2009), U.S. Ambassador to Turkey (2003–2005), U.S. Ambassador to the Republic of Finland (1998–2001), and Princip ...
and
Daniel Fried Daniel Fried (born 1952) is an American diplomat, who served as assistant secretary of state for European and Eurasian affairs from 2005 to 2009 and United States ambassador to Poland from 1997 to 2000.Moscow Moscow ( , US chiefly ; rus, links=no, Москва, r=Moskva, p=mɐskˈva, a=Москва.ogg) is the capital and largest city of Russia. The city stands on the Moskva River in Central Russia, with a population estimated at 13.0 millio ...
branch of Barclays Capital said that the war with Georgia was the tipping point for the investors.
Echo of Moscow Echo of Moscow (russian: links=no, Эхо Москвы, translit=Ekho Moskvy) was a 24/7 commercial Russian radio station based in Moscow. It broadcast in many Russian cities, some of the former Soviet republics (through partnerships with local r ...
reported on 10 September 2008 that experts were assessing the official figure of Russian market loss of $5 billion as artificially lowered. Russian president Medvedev accused the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...
of causing the world financial crisis. The Russian stock market was officially recognised as the worst performing stock market in the world on 10 September 2008. The
BBC #REDIRECT BBC #REDIRECT BBC Here i going to introduce about the best teacher of my life b BALAJI sir. He is the precious gift that I got befor 2yrs . How has helped and thought all the concept and made my success in the 10th board exam. ...
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reported that the Russian stocks lost more than $300 billion valuation since the beginning of the war and one Russian expert linked the capital flight to the geopolitical tension between Russia and the West. On 12 September 2008, Russian president Medvedev attributed only 25% of the stock market fall to the war with Georgia. Medvedev contradicted
Vladimir Putin Vladimir Vladimirovich Putin; (born 7 October 1952) is a Russian politician and former intelligence officer who holds the office of president of Russia. Putin has served continuously as president or prime minister since 1999: as prime min ...
's earlier statement that the Georgian war was not the reason for the fall of the market. On 17 September 2008,
Under Secretary of State for Political Affairs The Under Secretary for Political Affairs is currently the fourth-ranking position in the United States Department of State, after the secretary, the deputy secretary, and the deputy secretary of state for management and resources. The current un ...
William J. Burns stated before the hearing of the
United States Senate Committee on Foreign Relations The United States Senate Committee on Foreign Relations is a standing committee of the U.S. Senate charged with leading foreign-policy legislation and debate in the Senate. It is generally responsible for overseeing and funding foreign aid ...
: The ''
Wall Street Journal ''The Wall Street Journal'' is an American business-focused, international daily newspaper based in New York City, with international editions also available in Chinese and Japanese. The ''Journal'', along with its Asian editions, is published ...
'' wrote: "The second blow o the Russian marketswas the war in the Caucasus: Russia crushed the Georgian army, but then Russia itself was crushed by the world economy." Anders Åslund commented on the Russian financial crisis that "Putin has rendered his poor country a prime victim" of his premeditated invasion of Georgia. With regard to the financial market reaction to the Russo-Georgian War, Agence France-Presse reported on 19 September 2008 that unidentified analysts believed that Russian stock exchange decline in August and September 2008, were attributed to "a mix of falling energy prices, global market turmoil and political issues including worries over the war with Georgia." In late September, the Kremlin issued $130 billion aid to help recover the stock market. The ''
Financial Times The ''Financial Times'' (''FT'') is a British daily newspaper printed in broadsheet and published digitally that focuses on business and economic current affairs. Based in London, England, the paper is owned by a Japanese holding company, Ni ...
'' argued that Russian invasion of Georgia damaged "the understanding that if tycoons played by Kremlin rules they would prosper". On 27 September 2008, US Vice-Presidential candidate Joe Biden said during his meeting with Georgian president
Mikheil Saakashvili Mikheil Saakashvili ( ka, მიხეილ სააკაშვილი ; uk, Міхеіл Саакашвілі ; born 21 December 1967) is a Georgian and Ukrainian politician and jurist.
that Russia was paying price for her actions in Georgia and Russian stock markets lost around $750 billion. British Foreign Secretary David Miliband suggested that Russia's posture could be changed by the plummeting of Russian stocks, "there is leverage on Russia, in the form of international markets." Russian billionaire
Alexander Lebedev Alexander Yevgenievich Lebedev ( rus, Александр Евгеньевич Лебедев, p=ɐlʲɪˈksandr jɪvˈɡʲenʲjɪvʲɪtɕ ˈlʲebʲɪdʲɪf; born 16 December 1959) is a Russian businessman, and has been referred to as one of t ...
opined by late September 2008 that the war in Georgia was responsible for the 40% drop in the Russian financial market. Russian economist
Andrey Illarionov Andrey Nikolayevich Illarionov (russian: Андре́й Никола́евич Илларио́нов, born 16 September 1961) is a Russian economist and former senior policy advisor to Vladimir Putin, the President of Russia, from April 2000 ...
noted the correlation between the escalation of the aggressive rhetoric of the Russian officials and the sharp drops of the Russian financial markets in August-September 2008. Former
Prime Minister of Estonia The Prime Minister of Estonia (Estonian: ''peaminister'') is the head of government of the Republic of Estonia. The prime minister is nominated by the president after appropriate consultations with the parliamentary factions and confirmed by th ...
Mart Laar Mart Laar (born 22 April 1960) is an Estonian politician and historian. He served as the Prime Minister of Estonia from 1992 to 1994 and from 1999 to 2002. Laar is credited with having helped bring about Estonia's rapid economic development dur ...
stated in October 2008 that it was "miracle" that the Economy of Georgia survived the war. Israeli newspaper ''
Yedioth Ahronoth ''Yedioth Ahronoth'' ( he, יְדִיעוֹת אַחֲרוֹנוֹת, ; lit. ''Latest News'') is a national daily newspaper published in Tel Aviv, Israel. Founded in 1939 in British Mandatory Palestine, ''Yedioth Ahronoth'' is the largest paid n ...
'' stated in November 2008 that it was the economy of defeated Georgia that was prospering, not the economy of winning opponent. Russian newspaper ''
Vedomosti ''Vedomosti'' ( rus, Ведомости, p=ˈvʲedəməsʲtʲɪ, ) is a Russian-language business daily newspaper published in Moscow. History ''Vedomosti'' was founded in 1999 as a joint venture between Dow Jones, who publishes ''The Wall ...
'' stated in late October 2008 that no investor was fleeing Russia before the war in Georgia. Russian journalist
Yulia Latynina Yulia Leonidovna Latynina (russian: Ю́лия Леони́довна Латы́нина; born 16 June 1966) is a Russian writer and journalist. She is a columnist for ''Novaya Gazeta'' and the most popular host at the Echo of Moscow radio stat ...
commented on the Russian stock collapse that the "Russo-Georgian war can be considered the largest insider deal undertaken so far in the history of mankind".
Bloomberg L.P. Bloomberg L.P. is a privately held financial, software, data, and media company headquartered in Midtown Manhattan, New York City. It was co-founded by Michael Bloomberg in 1981, with Thomas Secunda, Duncan MacMillan, Charles Zegar, and a 1 ...
agency stated in late October 2008 that the Russian stocks had become the cheapest stocks in the world. Stratfor stated that "nearly $63 billion in foreign investment was pulled out of Russia immediately following the August intervention in Georgia."
Mayor of Moscow The Mayor of Moscow (russian: Мэр Москвы, Mer Moskvy) is the head and the highest-ranking official of Moscow, who leads the Government of Moscow, the main executive body of the city. Moscow is both a city and separate federal sub ...
Yury Luzhkov Yury Mikhailovich Luzhkov ( rus, Ю́рий Миха́йлович Лужко́в, p=ˈjʉrʲɪj mʲɪˈxajləvʲɪtɕ lʊˈʂkof; 21 September 1936 – 10 December 2019) was a Russian politician who served as mayor of Moscow from 1992 to 2010 ...
claimed in November 2008 that excessive American military spending in Georgia, Ukraine and the Baltic countries was responsible for the
global financial crisis Global means of or referring to a globe and may also refer to: Entertainment * ''Global'' (Paul van Dyk album), 2003 * ''Global'' (Bunji Garlin album), 2007 * ''Global'' (Humanoid album), 1989 * ''Global'' (Todd Rundgren album), 2015 * Bruno ...
.
James Rubin James Phillip Rubin (born March 28, 1960) is an American former diplomat and journalist who served as U.S. Assistant Secretary of State for Public Affairs in the Clinton Administration from 1997–2000. He wrote a regular column on foreign aff ...
noted: "Even before the financial crisis struck last month, Russia's market was collapsing as a result of the Georgian war, making a mockery of Putin's boast that
Moscow Moscow ( , US chiefly ; rus, links=no, Москва, r=Moskva, p=mɐskˈva, a=Москва.ogg) is the capital and largest city of Russia. The city stands on the Moskva River in Central Russia, with a population estimated at 13.0 millio ...
would soon be the world's financial center." Russian president Medvedev announced in March 2009 that Russia was no longer considering the establishment of the world financial center in Moscow due to the financial crisis. The financial crisis in Russia caused the separatist sentiments and the emergence of the suggestions to return to the budget relations of the times of the
Parade of sovereignties The parade of sovereignties (russian: Парад суверенитетов, translit=Parad suverenitetov) was a series of declarations of sovereignty of various degrees by the Soviet republics in the Soviet Union from 1988 to 1991. The declaratio ...
between Moscow and the regions. Head of Tatarstan
Mintimer Shaimiev Mintimer Sharipovich Shaimiev ( tt-Cyrl, Минтимер Шәрип улы Шәймиев, translit=Mintimer Şärip ulı Şäymiev; russian: Минтиме́р Шари́пович Шайми́ев; born January 20, 1937) is a Russian former p ...
supported the idea of strengthening of federalism in Russia and the revision of the relations between the federal center and the regions.
Head of the Republic of Bashkortostan ) (from 01.01.2015) Head (russian: Глава) (in russian from 01.01.2015) , member_of = Government of the Republic of Bashkortostan , residence = Republic House , seat = 46 Tukaeva Street,Ufa, 450101 E-mail: aprb@bashkortostan.ru , appointer = ...
Murtaza Rakhimov said that the restoration of the elements of federalism would be a "worthy response" to the financial crisis. Russian journalist
Mikhail Leontyev Mikhail Vladimirovich Leontyev (russian: Михаи́л Влади́мирович Лео́нтьев; born 12 October 1958) is a Russian political commentator currently working on national TV Channel One (Russia), Channel One. He is known for h ...
stated that the
world war A world war is an international conflict which involves all or most of the world's major powers. Conventionally, the term is reserved for two major international conflicts that occurred during the first half of the 20th century, World WarI (1914 ...
was the only way out of the financial crisis and did not rule out that it could begin either with the escalation between Russia and Ukraine or the renewed conflict with Georgia. The Russian gold and foreign currency reserves had been reduced from $597 billion on 8 August 2008 to $437 billion as of 5 December 2008. Russia's credit rating was downgraded in December 2008 for the first time since the 1998 Russian financial crisis. The Russian authorities banned the word "crisis" for describing the situation in Russia in the state-administered media. Russian expert noted that the Kremlin would increase the verbal attacks on Georgia, Ukraine and the United States to distract the Russian population from the economic problems.
Paddy Ashdown Jeremy John Durham Ashdown, Baron Ashdown of Norton-sub-Hamdon, (27 February 194122 December 2018), better known as Paddy Ashdown, was a British politician and diplomat who served as Leader of the Liberal Democrats from 1988 to 1999. Internati ...
wrote that economic crisis triggered by the war in Georgia would cause Russia to improve relations with the
European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been de ...
. The
Central Bank of Russia The Central Bank of the Russian Federation (CBR; ), doing business as the Bank of Russia (russian: Банк России}), is the central bank of the Russian Federation. The bank was established on July 13, 1990. The predecessor of the bank can ...
used $74 billion in December 2008 to halt the fall of ruble which had started after the Russian invasion of Georgia in August 2008. The Central Bank of Russia announced in January 2009 that third quarter of 2008 saw a net capital outflow of $17.4 billion, while $130.5 billion left Russia in the fourth quarter. As of 30 January 2009, the Central Bank of Russia had disbursed $211 billion since August 2008.
Petrozavodsk Petrozavodsk (russian: Петрозаводск, p=pʲɪtrəzɐˈvotsk; Karelian, Vepsian and fi, Petroskoi) is the capital city of the Republic of Karelia, Russia, which stretches along the western shore of Lake Onega for some . The population ...
Shipbuilding Plant announced in January 2009 that the financial crisis compelled them to consider selling of warship even to Georgia. On 3 March 2009, ''
Kommersant ''Kommersant'' (russian: Коммерсантъ, , ''The Businessman'' or Commerce Man, often shortened to Ъ) is a nationally distributed daily newspaper published in Russia mostly devoted to politics and business. The TNS Media and NRS Russia ...
'' newspaper reported that a large part of promised Russian financial aid had not yet arrived in South Ossetia due to dispute between South Ossetian and Russian authorities on the control mechanism of spending. Russian expert Mikhail Aleksandrov explained the wish of Russia to control South Ossetian spending as caused by the financial crisis and that the Russian government lacked funds for Russia's own regions. ''Kommersant'' reported on 16 March 2009 that the government-affiliated workers in Tskhinvali received their January-February wages only in March and the authorities explained this delay as caused by the financial crisis in Russia. In late March 2009, Russian minister of regional development Viktor Basargin stated that by the year's end, the financial crisis could cause the number of budget donor regions to drop to only two: Moscow and
Saint Petersburg Saint Petersburg ( rus, links=no, Санкт-Петербург, a=Ru-Sankt Peterburg Leningrad Petrograd Piter.ogg, r=Sankt-Peterburg, p=ˈsankt pʲɪtʲɪrˈburk), formerly known as Petrograd (1914–1924) and later Leningrad (1924–1991), i ...
.


See also

*
Great Recession in Russia The Great Recession in Russia was a crisis during 2008–2009 in the Russian financial markets as well as an economic recession that was compounded by political fears after the war with Georgia and by the plummeting price of Urals heavy crude o ...


References

{{DEFAULTSORT:Financial market reaction to the Russia-Georgia war Russo-Georgian War